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The OFT formally alleges that the construction companies named in the Statement of Objections (OS) have engaged in bid rigging activities, and in particular cover pricing.

False impression of the level of competition 

Cover pricing describes a situation where one or more bidders collude with a competitor during a tender process to obtain a price or prices which are intended to be too high to win the contract.

The tendering authority, for example a local council or other customer, is not made aware of the contacts between bidders, leaving it with a false impression of the level of competition and this may result in it paying inflated prices.

Cover pricing arrangements have previously been found by the OFT and the Competition Appeal Tribunal to be illegal and in breach of the Competition Act 1998 due to the restrictions on competition that arise.

In addition, the SO formally alleges that a minority of the construction companies have variously entered into one or more arrangements whereby it was agreed that the successful tenderer would pay an agreed sum of money to the unsuccessful tenderer - known as a 'compensation payment'.

These more serious forms of bid rigging are usually facilitated by false invoices.

Practice of cover pricing widespread 

The construction companies under investigation carry out general building work including construction of housing, as well as commercial and industrial construction both in the public and private sector.

The SO allegations cover a diverse range of projects, including tenders for schools, universities and hospitals.

The OFT's investigation originated from a specific complaint in the East Midlands in 2004, but it quickly became clear from the evidence that the practice of cover pricing was widespread.

The SO's formal allegations therefore cover neighbouring areas including Yorkshire and Humberside and also elsewhere in England.

The OFT has also received evidence of cover pricing implicating many more companies on thousands of tender processes, but has focused its investigation on approximately 240 alleged infringements which are being pursued in the SO.

During the course of the investigation, the OFT carried out site visits at the premises of 57 firms.

Prices artificially high 

The OFT received 37 leniency applications in the investigation leading to this SO, and all other parties received an offer of a reduced financial penalty, which led to over 40 further companies subsequently admitting participation in some bid rigging activities.

No assumption should be made at this stage that there has been an infringement of competition law by any of the companies named in the SO.

The 112 parties concerned now have the opportunity to make written and oral representations which the OFT will take into account before making a final decision as to whether competition law has been infringed, and as to the appropriate amount of any penalties the OFT may decide to impose on each of the firms concerned.

John Fingleton, OFT chief executive, said that cartel activity of the type alleged harmed the economy by distorting competition and keeping prices artificially high.

“This investigation, together with the OFT's previous decisions in the roofing sector, will hopefully send out a strong message to the construction industry about the seriousness with which we view suspected anti-competitive behaviour. Businesses have no excuses for not knowing and abiding by the law,” he added.

Financial incentives 

Under the Competition Act 1998 and Article 81 of the EC Treaty, cartels are prohibited.

Any business found to be a member of a cartel could be fined up to 10 per cent of its worldwide turnover. In calculating financial penalties, the OFT takes into account a number of factors including seriousness of the infringement(s), turnover in the relevant market and any mitigating and/or aggravating factors.

An SO gives notice of a proposed infringement decision under the Competition Act 1998 to the parties involved.

The parties then have the opportunity to make written and oral representations in response to the case set out by the OFT.

Such representations will be considered by the OFT before any final decision is made.

The OFT has previously found infringements of the Competition Act in relation to cover pricing and other bid rigging infringements in the roofing sector in five decisions between 2004 and 2006.

The OFT has a policy under which it will pay financial incentives of up to £100,000 in return for information which helps it to identify and take action against illegal cartels.

Rewards will be paid only where information is accurate, verifiable and proves to be useful in the OFT's anti-cartel enforcement work, and will be calculated according to a set formula and not subject to negotiation.

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